The recent shifts in US regulatory space towards being more pro-crypto have brought optimism to the crypto industry. However, the vulnerability of crypto to macroeconomic factors has become evident in recent weeks, especially with the announcement of tariffs by President Trump. The implementation of tariffs could lead to a decrease in consumer spending, which is a significant driver of the US GDP. This reduction in spending could potentially push the economy into a recession, impacting job losses in the US and its trading partners, Canada and Mexico.
The imposition of tariffs could have severe spillover effects on the global economy. If the 25% tariffs mentioned are implemented, Canada and Mexico, two of the largest trading partners of the US, could potentially tip into a recession. The uncertainty surrounding trade policy shifts could further depress economic activity, affecting both domestic and international companies. Last week saw the volatility induced by these policies, with Bitcoin’s price reacting to news of tariffs.
Federal Reserve officials have expressed concerns about the inflationary potential of tariffs. Tariffs raise import costs, which are then passed on to consumers, leading to accelerated inflation. This scenario is worrisome as it erodes real incomes and can worsen recessionary pressures by reducing consumer spending. The Federal Reserve faces a dilemma in addressing these issues and controlling inflation without exacerbating economic slowdowns caused by tariffs.
While digital assets like Bitcoin have struggled to maintain stability amid rising trade tensions, traditional safe-haven assets like gold have seen increased demand. Gold reached an all-time high recently as investors seek refuge amid market volatility and inflationary pressures. The relative stability of gold makes it an attractive asset during times of uncertainty. The coming weeks will be decisive in determining the impact of aggressive tariff imposition on inflation and market volatility.
In conclusion, the current shifts in US trade policy towards protectionism could have far-reaching consequences on the global economy. The risks of recession, job losses, and inflation are significant if the tariffs are implemented. Policymakers and investors need to consider the broader impact of trade protectionism beyond just international commerce. The evidence suggests that the risks of recession and consumer confidence damage outweigh the potential benefits of renegotiating trade terms. It will be essential to monitor the developments in trade policy and their effects on the economy in the coming weeks.
